Will the ECB bring on stimulus or not?

It was 3 weeks ago when Mario Draghi decided to began jawboning his concerns over EUR strength and the need of some stimulus for the EU. As usual, initial market reaction was stronger than the ones triggered over the following days when other EU authorities backed up his wording; but when it comes to EUR price action, the effect has been limited, preventing the currency from rising further, but unable to take it down: investors are now in wait and see mode, holding their breath –and their positions- ahead of upcoming ECB meeting next Thursday.

Over this last week we got some critical data that may help to shed some light over the case, starting with German inflationary readings that remained subdued and felt down to -0.2% monthly basis; later, inflation in the euro area rose less than economists forecasted, but somehow picked up from the terrible 0.5% reading of March, reaching 0.7%, taking off some of the pressure on the ECB to start taking unusual economic measures as soon as this month.

Nevertheless, many members of the Central Bank had continued expressing their desire for more easing due to disinflation: inflation has been running well below the target for over a year now, leaving the Governing Council with little room to maneuver. Market belief at this point is that, stimulus won’t come probably until June meeting, and investors are eager to hear what Super Mario has to say: any tips on upcoming measures will probably put the EUR under strong selling pressure, while if he fails to deliver, bulls will breathe on relief and push the currency towards fresh year high, particularly against USD and JPY.

In the meantime in the US, the FED trimmed another $10B from its facilities programs, reducing monthly stimulus to “just” $45B. First quarter growth of 0.1% disappointing by far kept the greenback under bear’s domain while outstandingly positive employment figures seem not enough this Friday to boost the greenback beyond critical levels particularly against European rivals: it will take more than an unemployment rate down to 6.3% one month, to revert the dollar bearish trend, and as afore mentioned, investors are just waiting for super Mario.

But while the ECB is meant to take center stage, is not the only critical fundamental reading for next week: other central banks will meet, such as the Reserve Bank of Australia and the Bank of England. Australian monthly employment figures will also be released these days, and along with the RBA, can be the make it or break for Aussie. The commodity currency stands now amongst the weaker of the board, so unless upward surprises, is set to continue fading against the greenback. Being RBA meeting on Tuesday, and employment figures on Wednesday it will take these lasts to be released to set a clear picture for the Australian currency.

Regarding the Bank of England, as it’s become usual no changes in the economic policy are expected for next Thursday, although the MPC is expected to revise inflation lower and growth higher: latest GDP readings shown a 3.1% growth yearly basis, and with the inflation within the Central Bank mandate, investors are looking at the UK to be the first to begin with tightening. Anyway risk to the downside remains pretty much limited for Pound these days, and seems the BOE will do little to change that.